The personal blog of Peter Lee a.k.a. "China Hand"... Life is a comedy to those who think, a tragedy to those who feel, and an open book to those who read. You are welcome to contact China Matters at the address chinamatters --a-- prlee.org or follow me on twitter @chinahand.

Tuesday, November 29, 2005

A while back I posted a lament that the New York Times quoted Arthur Waldron on the matter of Chinese policy activities vis a vis Uzbekistan, without identifying Prof. Waldron as someone whose views on China and the Chinese threat were well to the right and who, in fact, is worshipped as a tutelary deity by the “Blue Team” of distinctly non-Asian-expert conservatives that have found post Cold-War careers in hyping the Chinese threat.

Although I took deliberate pains to ascribe Prof. Waldron’s comments to his rather unique views of China’s role in modern Asia history and in contemporary international relations—and not to any right-wing habit of cherry-picking worst-case assessments at the expense of more plausible and less alarmist explanations—he took umbrage.

For the convenience of the reader, I reproduce my post and Prof. Waldron’s comments below.

Professor Waldron’s dismissive statement that “The Blue Team exists mostly in the mind of those who fear them” will provide food for thought and amusement for us, and possibly dismay for that group of panda-affronted Washington warriors.

After all, the Blue Team seeks to cultivate an aura of mystery and menace concerning its hidden web of connections and virtuous conspiracies inside the Washington national security establishment, possibly to compensate for the limitations of intellect, experience, credibility, and achievement that characterize its non-covert activities:

The impact of the Blue Team still "isn't nearly what this community [ofhard-liners] desires," lamented Richard Fisher…. But he noted withsatisfaction that the Blue Team "strikes terror into the heart" ofWashington's policy establishment

The interesting issue of whether Professor Waldron is choosing to distance himself from the Blue Team as a matter of tactics or of principle could be addressed more easily if he started his own blog and deconstructed the inside-the-Beltway gyrations of the Blue Team from his privileged perspective--something that I encourage him to do, so his views can be better examined and understood in full context as he desires.

Professor Waldron concludes with the canard that my anonymity is a mark against my character and presumably discredits my views.

To clarify:I do not know Prof. Waldron professionally or personally. I have a career far removed from academics or public policy, a career which I choose not to endanger by linking my identity to this blog.

In the unlikely event I decide to make a job of retailing my views on China and decide to use my professional standing to enhance the credibility and visibility of my opinions—as Professor Waldron has--I will paint the bull’s eye on my back, abandon the China Hand nom de plume, and provide readers with the dubious pleasure of directing their comments to a name instead of a persona.

Until then, Professor Waldron will have to satisfy himself with addressing the matters of fact and opinion posted on this blog, instead of the individual behind them.

"Energy is clearly one driver for China in the region," said Arthur Waldron, a China expert at the University of Pennsylvania. "My sense is that they also tend to think that anything that throws sand into the face of the U.S. is a good thing."

Hmmm. Not exactly the way I read it.

In the interests of full disclosure, I think Kahn and Buckley should have identified Waldron as affiliated with the self-identified “Blue Team” of confront-China enthusiasts seeking to permeate the Pentagon and State Department.

Waldron is the former Director of Asian Studies at the American Enterprise Institute; signatory to Project for the New American Century statements on Taiwan and Hong Kong; served on the boards of various right-leaning foundations, and testifies to Congress on the China threat.

In the feisty days when Clinton was president and the Blue Team boasted of its virtuous conspiracy to tilt policy and perceptions toward a harder anti-China stance in the face of panda-hugger persecution, Waldron openly called for regime change in China.

He provides academic credibility and cover for the Blue Team, which is composed largely of anti-PRC enthusiasts with limited backgrounds in Asian affairs, in role similar to the one Bernard Lewis played for the neo-cons over Iraq.

It may be unfair, but I see Waldron, like Lewis, as an academic at best prescribing tough love for his area of study and at worst sounding positively Sinophobic.

In considering 20th century Asia, Waldron has a strong pro-Japan tilt. A flavor of his views, and how he applies them to the current situation, can be gleaned from his piece Japan Emerges, published earlier this year:

So perhaps we should listen to other historians, less well known than those who concentrate on Japanese domestic history {for the origins of the China invasion}, stressing instead a series of completely unexpected developments in the region that even the most liberal Japanese leaders saw as threatening to their country’s security.

Most important of these was a strong but erratically guided rise of Chinese power that saw that country’s government, goading and reacting to the resentments of her people, flout many of the undertakings she had made at Washington {at the Washington Conference of 1921-22--CH}.

Almost simultaneously came political splits and then civil wars in a China that at the time of the Conference had seemed politically stable and set on a course of peaceful economic development. These wars threatened continental interests that Tokyo considered vital, and when the allies who had promised at Washington to consult on such threats and act to protect legitimate interests failed to do so, Japan attempted to do so herself—in a catastrophic way that saw both democracy and millions of Japanese people perish.

One element of a parallel to these developments is already in place. North Korea’s nuclear capability has deeply unsettled Japan…

Translation: The Chinese were asking for it in the 1930s and now they’re asking for it again today.

Most students of the period tend to blame Japanese belligerence and imperial ambition for the catastrophe of the Pacific War, not Chinese provocation.

As Waldron himself admits, he’s in the minority in his reading of modern Asian history.

So it seems to me a sign of the rightward drift in the popular discourse about China that he nevertheless appears to be a go-to guy for the New York Times when some academic insight about the PRC is called for.

When Waldron depicts China’s outreach to the Uzbekistan regime primarily as a move touching on the mother of all American strategic interests—oil—and a provocative nose thumbing at the United States…

…instead of a clumsy embrace driven by China’s fear that weakening of authoritarian regimes in Central Asia will give the Muslims of Xinjiang a thirst for the same kind of populist, anti-government activism and promise of democratic self-determination that has roiled Kyrgyzstan and Uzbekistan…

…it makes me wonder if he’s trying to create a pressing issue for America in China’s relationship with Uzbekistan that really isn’t there.

If anything, China may be using its ostentatious show of support for Karimov to signal to the United States that China is fully vested in the survival of this pro-American tyrant and the U.S. government should not feel there is any need—or compelling alternative—to abandoning him.

Arthur Waldron’s Comment

Dear Colleagues--

I am still squinting from the limelight your blog has directed on me. A fewcomments:

First, no one who spends thirty plus years of his life on classical and modernChinese can have anything but a very high opinion of Chinese civilization. Noone who knows me would question that.

Second, no one who is named for a young American who died fighting in thePhilippines in May 1945 could be pro-Japanese.

Third, the only point of being an intellectual--and I am, in the sense that I ampaid, for life, to think about things and comment, is to CALL THINGS AS YOU SEETHEM.

Fourth, while I am pleased to see the great changes in China since 1976 I don'tsee much eagerness to attack the fundamentals: freeing the press, freeing theprisoners, allowing elections and opposition parties, making the currencyconvertible, etc. The longer this is put off, the more difficult changebecomes, the more opportunities are wasted amd the more difficult the problemsare when the inevitable crash comes.

Fifth, I note a distinct unwillingness on the part of many colleagues to facedirectly the worrying aspects of China such as internet censorship,surveillance, and wasteful military buildup.

Having these views does not make you anti-China. And I would hate to think thatsupporting democracy, freedom, and dignity now places me on the "right." Notethat the real hard line communists in China are conservatives. Those like mewho are against them are also called conservatives. This makes no sense.

The Blue Team is not a team and is very loose, it exists mostly in the mind ofthose who fear it.

As for your comments on the one phrase extracted from a long interview, they donot adequately convey my full views on a subject I have studied for many years.Read my books and articles, not just the stuff that turns up on the net. I amdifficult to pigeonhole.

Rather than follow personalities, follow the facts. As Zoellick's fine speechmade clear, these are not ideal.

I have never sought to be an intellectual leader. I just try to say what Ibelieve and stick by it, damn the torpedoes. I have taken some hits. What doyou do?

Lets get back to the facts. They provide plenty to discuss.

And here is my name: Arthur Waldron. You know where to find me. The personbehind this blog does not even have the guts to admit who he is. That is NOThow I operate. Even if it is a negative tenure letter, I write it so that Icould present it in person to the subject. It might be difficult, but the wordswould be straight.

Tuesday, November 01, 2005

Taiwan intellectual, legislator, firebrand, and free spirit Li Ao acquired a further distinction--dingbat--during the 2000 presidential election by alleging an affair between Mdme. Chiang Kai-shek (Soong May-ling) and U.S. political figure Wendell Willkie during the Chungking years.

Turns out, he was right.

In The Soong Dynasty, author Sterling Seagrave had already cited John Service's on-the-scene but anodyne reports on the apparent mutual interest between Willkie and Soong May-ling, which led to Willkie paving the way for Mdme. Chiang's triumphal visit to the United States in 1943.

The story was taken a step further in Jonathan Fenby's recent biography of Chiang Kai-shek.

Fenby quotes virtually verbatim (and fully cites) Mike Looks Back, a privately published memoir (1985) by Gardner Cowles, scion of a publishing empire that included Look magazine. Cowles was Willkie's supporter and confidant during Willkie's political career, which culminated with a presidential run against FDR in 1940.

In 1942, FDR dispatched Willkie on an around-the-world fact-finding trip accompanied by Cowles. During a brief stay in Chungking, Willkie and Mdme. Soong became powerfully enamoured of each other.

On one occasion they slipped away from a government reception, leaving Cowles to divert the attention and wrath of Chiang Kai-shek. Later that evening, the Generalissimo appeared at Cowles and Willkie's quarters and searched it from top to bottom in a vain effort to find his wife.

At 4:00 am Willkie returned, in Cowles' words "cocky as a young college student after a successful night with a girl...giving me a play by play account of what had happened"--though Cowles is too much the gentleman to reveal the details himself.

Then Wilkie announced to an astounded Cowles that he wanted to bring Soong May-ling back to Washington with him.

Cowles convinced Willkie such an escapade would doom his political aspirations. As repayment Cowles was delegated to deliver the bad news to Mdme. Soong. Her reaction created an indelible impression on him:

Before I knew what was happening she reached up and scratched her long fingernails down both my cheeks so deeply that I had marks for about a week.

When Mdme. Soong eventually made her historic trip to the United States the next year, she summoned Cowles to her suite in the Waldorf and proposed that he devote himself exclusively to obtaining the Republican presidential nomination for Willkie, spending whatever was necessary--with his expenses to be reimbursed by Mdme. Soong:

...she wound up her sales talk with a remark I shall never forget: "You know, Mike, if Wendell could be elected, then he and I would rule the world. I would rule the Orient and Wendell would rule the Western world." And she stressed the word rule.

After the war, Cowles repeated the story to his wife, sophisticate/socialite/inveterate name dropper Fleur Cowles. While deriding Mike Looks Back as ghost-written and inaccurate, at least as it pertains to the launch of her legendary style magazine Flair, she retells the Mdme. Chiang/Willkie story herself in her own 1996 memoir She Made Friends and Kept Them, confirming more explicitly that the encounter was a secret tryst between the two and not simply a tete a tete about absolute world domination:

On this historic trip, Mme Chiang had her dangerous, short-lived affair with Wendell Willkie ...This brief love affair...had taken place in Mme Chiang's secret apartment on the top floor of the Women's and Children's Hospital. Mme Chiang was so besotted by Willkie she asked to see Mike Cowles privately before they left China, pleading with him to make sure that Willkie would beat Roosevelt in the next election for the Presidency. She offered to pay any costs! [Emphasis in original]

The conversation concluded with her agitated promise: 'If Wendell could be elected, he and I would rule the world, I the Orient, Wendell the rest.'

Gardner and Fleur Cowles divorced, apparently not on the best of terms, in 1955. By conflating the two conversations between Mdme. Chiang and Gardner Cowles, she seems to be relying on her own recollections of 40-year old events--indeed she recollects that her husband told her the story "shortly after we were married"--and not regurgitating Gardner Cowles' disparaged memoir.

Amusingly, Fleur Cowles seems unaware of what must have been Mdme. Chiang's resentment at Gardner Cowles for interfering with her plans for the ultimate, world-conquering power couple romance, and for failing to catapault Willkie into the White House in 1944.

When Fleur Cowles unexpectedly passed through Taiwan in 1953, Mdme. Chiang dropped her off at her accommodations--a fog shrouded, cliffside concrete aerie with "hideously primitive" sanitation, originally used as a final residence for Japanese kamikaze pilots--and told the snake-phobic Cowles sharply:

...I used to reason that, in all likelihood, neither snake nor housekeeper really existed, that the snake had been conjured up as a mischievous form of revenge by Mme Chiang for 'dropping in' on her but...I just couldn't sleep. By the time I left, I had decided that insects, whether flying or crawling, and the hole in the floor for sanitation, were horrible enough to make the snake merely another ingredient in a nightmare.

Gardner Cowles' recollections, complete with claw marks, can't be dismissed as hearsay or third-hand tittle-tattle. And it was a story he regaled his wife with shortly after the event, before age, imagination, and fading memory had taken their toll.

The question that interests me is What did Li Ao know--and when did he know it? Did he glean allegations from the otherwise obscure memoirs of Gardner and Fleur Cowles? Or are there other voices?

The tactics in Taishi, however, were more sophisticated than those used by other protesters. Outside legal experts were asked for advice and the protesters used the internet and mobile phones to spread their campaign on bulletin boards and among domestic and foreign journalists.

Furthermore, the activist, Lu Banglie, was not a local. He had come to Taishi to encourage locals to vote in upcoming elections to challenge the corrupt local government.

I believe the central Chinese government considers democratic and quality-of-life agitation useful--when it is exercised by locals against local regimes.

While allowing the locals to let off steam, it enables the central government to present itself as a counterweight to corrupt local power and burnish its "protector of the people" credentials.

What the central government does not want is for non-local human rights and democracy activists to attempt to supplant it in its self-chosen role, and create a situation in which locals look to non-government intermediaries--a democracy movement with national pretensions, or international media--for aid.

Then the central government would find itself in the undesirable and disadvantageous position of a complicit, inefficient, and distrusted force competing against these alternate sources of support--and itself losing the political and moral initiative that comes from being a sole mediator and instead becoming the focus of legitimized pressure groups demanding that it "do something".

Just as the segregated South frowned on "outside agitators" as a challenge to the traditional power structure, the Chinese central government must be deeply concerned at the rise of an alternate national political network.

And just as non-local civil rights activists were brutalized and murdered in the South, the central government--and not just the under-siege local politicians--may have decided that a salutory dose of terror and intimidation at an early stage might be needed to nip this democracy movement in the bud.

Apologies and investigations can come later, but will not dim the memory--or message--of the vicious, high-profile assault on a non-local democracy activist and his impotent witnesses from the international media.

A human rights observor described Lu's beating as going "far beyond anything that has happened before". The fact that it was committed in full view of a foreign correspondent was also unprecedented.

Tuesday, September 27, 2005

On a subject dear to all our hearts, the Chinese government has unveiled a new regulation on internet news providers.

There has been a certain amount of squealing in the media and blogosphere, taking the new reg as a jumping off point to grumble about Chinese attempts to clamp down on non-government sources of information and opinion.

All very true, but the intention of the new reg is primarily to create a protected class of licensed Internet news companies, incorporated, registered with the government, with certain levels of capitalization and employees (with minimum 3 years' previous experience in the news business), in other words corporatized news businesses unlikely to offend--a media style we're more than a little familiar with here in the US.

Penalties on unlicensed news purveyors--those brave bloggers, posters, and Falun Gong enthusiasts--are mentioned once Section 5 Chapter 26, for those of you who like to keep track), almost in passing, when the penalties for people who get into the news business without a license are addressed.

So the point of this new policy is not to try to resuscitate the AOL model and create the world's largest moderated chatroom, with Sohu and Yahoo dutifully pulling at the oars--though that's going on too.

What we have here is the capitalism-with-Chinese-characteristics side of the manufacturing consent equation.

The Chinese government wants to create nice, meek, risk averse Internet news businesses that will be protected from competition from lively, popular blogs and websites.

Armed with this protection--and secure in the knowledge that the Chinese government will sanction unlicensed news providers--the official news providers will grow, attract investment, and crowd out and delegitimize other information sources on the Internet.

In other words, it's a MSM Internet model, this time backed up by the clout of the host government.

Is it going to be up to the Chinese teach us the workable, profitable Internet news business model--call it Xinhua Select--based on government monopoly and corporate collusion?

Bill Keller must be envious. Imagine a world in which posting an embargoed David Brooks column is a crime against the state, and not just an offense against decency and respectable prose.

The kvetching of the print media is therefore rather ironic.

The Chinese regs--with their ostentatious paeans to professionalism, responsibility, accuracy, and accountability--sound like they are ripped from the transcript of those tedious blogger ethics panels that professional journalists are always convening to harrass the raggedy-assed purveyors of innuendo, speculation, and recycled news stories on the Internet.

In both cases, the net result is to suppress the indispensable alternate version of reality that the Internet can provide in this age of elite message management and information control.

Monday, September 26, 2005

Now that the "bad faith" rumpus over North Korea's follow-up statements on the Six-Party Agreement have died down, and the talks are chugging along toward Vietnam peace-talk style prolonged futility, it's interesting to gain another perspective on U.S. motivations. Why did the White House allow itself to sign onto a process that promises to provide neither disarmament, peace, inspections, or civilian nuclear reactors, but to date has only yielded the Bush administration an unwanted image of Clintonesque feckless accommodation?

Speaking at Steve Clemons' conference Beyond Bullets: Economic Strategies in the Fight Against Terrorism on September 21, renowned investigative journalist Seymour Hersh stated that he had been told in August by his sources that an agreement with North Korea at any cost was in the works so the Bush administration "could clear the decks" to deal with Teheran's nuclear ambitions.

The urgency, Hersh reported, came from the need for the United States to "keep [Arial] Sharon in the game" i.e. delivering a worthy quid pro quo to Israel--dealing with the existential threat of Iranian nuclear weapons--in return for Israel's sticking with the Gaza withdrawal (and presumably providing support for a neo-con "democracy on the march" version of events in the Middle East that justifies continued adventurism vis a vis Iraq, Syria, and Iran).

It's unclear what "dealing with Iran" would mean, since the Security Council referral by a divided IAEA is expected to result in a veto from Iran's nuclear patron, Russia, despite any multilateralist, "grownups back in charge" diplomatic cred the Condi Rice team may claim on behalf of U.S. foreign policy as a result of the hastily-concluded North Korea boondoggle. One would think the world is unlikely to go along with White House efforts to gin up an anti-Iran coalition after the Iraq fiasco just because we caved on North Korea.

This is unlikely to be an outcome satisfactory to Arial Sharon. With the Bush administration's international clout at low ebb and the American public showing little appetite for escalated Middle East adventures, perhaps the best Israel can do is attempt to reprise its "consequences be damned" pre-emptive strike against Saddam Hussein's Osiraq facility, this time against Iran's Bushehr reactor and its well-protected constellation of nuclear facilities, under a U.S. diplomatic--instead of military--umbrella.

This interpretation implies that U.S. commitment to the negotiation process on the Korean peninsula is merely temporary and tactical. When Iran is dealt with--effectively, incompetently, disastrously, or indifferently--the Bush administration will turn its attention to North Korea once again with its original pre-September regime change aims and malice undiluted.

Neo-con sympathizers may draw unexpected encouragement from Hersh's remarks. After all, by this scenario, the Chinese did not extort humiliating concessions on behalf of Kim Jung Il from a politically and diplomatically neutered Bush presidency.

Instead, the North Korea agreement can be comfortably construed as a Machiavellian master-stroke: a merely tactical retreat disguising the Bush administration's resolve to deal righteously with the Mini-Me oriental leg of the Axis of Evil at a later date--after America has resolutely grasped the Iranian nettle in a reaffirmation of its implacable determination to transform the Middle East with its gun-barrel vision of democracy.

Time will tell if the advocates of confrontation with North Korea will settle on this more flattering explanation for recent events that otherwise appears to be setback for their cherished goals.

On the other hand, those of us who believe that the neo-con's "democracy by apocalypse" agenda has delivered so much disaster and so little triumph that using the word "hubris" undeservedly implies that the neo-cons actually achieved something positive before overreach revealed their incompetence, the neocons remain what they have always been: useful, complicit tools providing an ideological veneer for conservative elites working to create their "Have It My Way" super-sized self-perpetuating imperial state devoid of accountability and transparency.

North Korea--and the suffering of its people--is merely a distraction, sometimes useful and sometimes irritating, in the evolving American effort to contain and confront China. When--if ever--the United States gets the Middle East under its control and can deny its resources to China, the time may come for America to join with Japan to use the North Korean situation as a lever to destabilize and alarm the PRC. Then the neo-cons will be let slip to confound and distract opinion with their lunatic baying about Pyongyang.

But the other dangers--to American interests and American democracy--are closer to home and more immediate.

In this context, Hersh's revelation (to me) that a 1700 square foot, multi-billion dollar stack of Saddam's US currency stash has disappeared into the insatiable maw of the burgeoning "off-the-books" covert operations empire of Bush's executive branch is a sign that Kim Jung Il and his regime should not number among the greatest of the our worries.

Note: Tip of the hat to Billmon comment site Moon of Alabama for unearthing and publicizing Hersh's remarks.

Tuesday, September 20, 2005

Re the fracas over Pyongyang demanding that they get their light water reactors first, there will be an understandable tendency to blame the North Koreans for screwing up the nuclear accord with another piece of last-minute brinksmanship intended to wring a final concession out of the talks.

Or, as the LA Times print edition of Sept. 20 puts it, "New Terms May Blow Up Nuclear Deal".

But consider this, from the New York Times, which did the best job of reporting the whole affair:

To break the impasse, Ms. Rice came up with a compromise during meetings on Saturday afternoon with her South Korean and Japanese counterparts. Each country, she suggested, would issue separate statements describing their understanding of the deal, with a specificity that is not in the agreement itself. The South Koreans and Japanese went along with the idea, though South Korea, one official said, complained that it would "sour the atmosphere." Russia and China issued vaguer statements that left unclear the sequence of events.

So the North Koreans, at Condi's suggestion, clarify their position on what they consider the "appropriate" time for them to get light water nuclear reactors, and get jumped on for being obstructionist jerks.

The NYT reported, in a phrase that may come back to haunt the Secretary of State, that Rice's involvement in the negotiations was characterized jokingly as "adult supervision".

The LA Times and Sonni Efron, usually reliable conduits for Condi Rice's version of events, somehow omitted this interesting nugget, which makes Condi look pretty clueless.

The actual negotiations were apparently a full-time fudge factory, according to the Washington Post:

China sought to bridge the gap, playing its leadership role as sponsor of the talks. Chinese diplomats proposed language according North Korea the right to a reactor for electricity production but implying that it could invoke that right only after dismantling its weapons program and rejoining the international nuclear inspection regime.

"Implying". As in "not stating". As in "I wonder what they actually said to the North Koreans?"

What is clear from the reporting is that the Chinese drove a hard bargain and insisted that the Bush administration, rocked on its heels by Katrina, Iraq, and Iran, had to accept that North Korea had the right to a civilian nuclear program or else face public blame for the collapse of the talks.

The Chinese, perhaps, overplayed their hand in an attempt to humiliate the U.S. into returning to the decade-old civilian nuclear reactor scheme and thereby admit that five years of fulmination, threats, and chest thumping rhetoric under Bush had done little more than return the Korean peninsula dialogue to the hated days of engagement, peace, economic carrots, and Bill Clinton-style diplomacy.

For its part, the United States might have been perfectly happy to see the agreement fall apart and not have to follow through on a concession that the upper levels of the Bush administration consider coerced and detestable.

Certainly there seems to be a disconnect between the wailing and gnashing of teeth reported today with the attitude that the Washington Post reported earlier, when the negotiating team was still trying to move things forward:

In an immediate demonstration of the difficulty ahead, the official North Korean news agency early today quoted an unnamed Foreign Ministry spokesman as asserting that Pyongyang would not give up its weapons program until it received nuclear reactors from the United States. A State Department official shrugged off the statement, saying the focus would remain on the Beijing declaration.

For the U.S., focus quickly shifted to asserting that the appropriate time for light water reactors is after complete disarmament and verification.

Re verification, the Post reported:

The administration envisions what one senior official described yesterday as a "very intrusive verification regime that will go well beyond what is required" by the IAEA.

For those of us with short memories, it is perhaps instructive to recall the experience of another member of the Axis of Evil, Iraq.

In that case, the U.S.and the U.K. pushed through an onerous inspection regime whose apparent intent was to confront and destabilize Saddam Hussein's regime to the point that it would expel the inspectors and provide a casus belli.

Whatever the reason--appeasing Bush's conservative domestic base, an inability to accept any unpleasant lessons from Iraq, or simply a failure of perspective or imagination--the U.S. is unwilling to surrender the propaganda advantages and strategic posture that come from assailing North Korea as a pariah state and subjecting its sovereignty to coercive U.S. and/or international supervision.

No doubt Kim Jung-Il remembers that Saddam Hussein acceded to full-cavity search treatment, and in return was rewarded with a duplicitous U.N. dog-and-pony show courtesy of Colin Powell, and got invaded anyway for his pains.

With that kind of history, civilian nuclear reactors will probably be operating on Mars before the Bush administration concludes its inspection regime in North Korea to its satisfaction.

So one can understand, if not appreciate, North Korea's explicit insistence that the light-water reactor program begin now, as a sign of good faith.

Failing that, what North Korea is probably hoping for is to drag the discussions out for another four years until there is a change of U.S. administration and a repudiation of the Bush "failed state" intervention doctrine that creates existential peril for the Kim Jung-Il regime whenever it comes into contact with the United States.

For a U.S. administration under siege and bereft of the credibility and will to resolve the Korean situation through negotiation and concession, the opportunity to deflect blame for the continued impasse away from itself and onto Pyongyang may be the only positive outcome it can hope for.

Friday, August 26, 2005

After four months of fits, starts, and leaks, Jay Lefkowitz was finally named the U.S. human rights envoy for North Korea on August 19.

Why Jay Lefkowitz?

While in the White House, Lefkowitz primarily handled domestic policy outreach to conservative Jewish and Christian groups, most famously in President Bush’s stem cell initiative. With Lefkowitz at the helm, a supposedly rigorous, even-handed review yielded a ban on new stem cell lines that pleased the religious groups, while providing political cover for President Bush (and effectively gutting the federal program) by grossly overstating the number of current lines available for research.

Lefkowitz’s qualifications as a North Korea expert or even a human rights activist beyond the blastocyst level might not be readily apparent.

However, he is close to Michael Horowitz, godfather of the conservative effort to recast the human rights foreign policy discourse as a struggle against religious persecution of Christians by communist and Muslim regimes, and midwife of the North Korean Human Rights Act of 2004, which authorized the human rights envoy.

In fact, according to one source, Lefkowitz is Michael Horowitz’s cousin, something that I welcome people more informed about the inner workings of the conservative movement than I am to comment on.

I addressed the Lefkowitz/Horowitz/North Korea/Evangelical angle in a previous post here .

On the surface, Lefkowitz’s long-delayed appointment might be interpreted as a sign that the Bush administration is lurching toward a policy of ideologically-tinged confrontation with Pyongyang.

The exact opposite may be true.

With President Bush’s approval levels scraping along in the mid-30s and even lockstep Republicans beginning to express concern over the difficulties in Iraq, the White House can ill afford another foreign policy debacle triggered by righteous Bush brinksmanship.

It may be better to allow Condi Rice and her team to pursue the full gamut of feasible foreign policy options vis a vis Pyongyang from Acquiescence to Accommodation to Appeasement that may yield the Bush administration some desperately needed domestic and international credit.

At the same time, with President Bush’s support shrinking to the hard core of true believers, he may need to make ostentatious but superficial gestures like the Lefkowitz appointment to reassure the famous “base” that he is still the true, parfit, and infallible knight of their regime change fantasies.

The true measure of the situation will be if Lefkowitz is encouraged to say or do something that seriously endangers the State Department negotiations currently under way.

Wednesday, July 27, 2005

Angry Bear has some good posts and comments here and here on the RMB revaluation, and specifically the issue of the fixed exchange rate that China adhered to for ten years.

Here's my two cents on why the Chinese government stuck with a fixed exchange rate for so long (and why major exhange rate changes in the future will occur by government fiat at carefully chosen intervals, and not as the result of a "free float").

I think the Chinese government clung to the 8.28:1 exchange rate for so many years because it wanted to discourage speculation while encouraging a relatively unfettered export trade.

Their forex regime is designed to make things reasonably uncomplicated on the current account, with the understanding that with a fixed exchange rate it's not worthwhile for importers and exporters to game the system with fake import and export contracts that would allow them to cycle dollars through their businesses and take advantage of the pre/post revaluation spreads.

The ingenuity of China-based enterprises in coming up with scams like this is limitless. The art is already highly developed in the techniques of transfer pricing to sequester funds overseas to reduce stated profits and to enable the offshore purchase and reinvoicing of imports at artificially low prices before they crossed the Chinese customs gate.

A fixed exchange rate was preferable to the enforcement headaches and bruising of the precious entrepreneurial spirit that would be required in trying to crack down on the fraud (abetted by corrupt government tipsters) and flood of illegal speculative cash that would accompany a fluctuating exchange rate.

As the Chinese government always takes pains to point out, it didn't manipulate the RMB/US$ exchange rate, as the U.S. has accused it of doing. It did just the opposite and had kept the rate fixed where it was since 1995 even as the value of the dollar drifted away.

That the Chinese government had to bow to political pressure and discard this stable system for one in which the currency becomes more vulnerable to speculative attack is a fact that probably doesn't make them very happy.

I wonder if the People's Bank of China will surrender to the guilty pleasure of confounding current and potential speculators with a transitory devaluation--a bull trap, you might say-- but I don't think the momentary satisfaction would be worth the international dismay that such an overt manipulation of the forex regime would evoke.

Monday, July 25, 2005

Brad DeLong’s website excerpts an exchange between Nouriel Roubini of NYU’s Stern Business School and David Altig, who labors in the research department of the Federal Reserve, on the Wall Street Journal website concerning the Yuan revaluation.

An excellent exchange on Roubini's part, providing more clarity than usual.

But I found Altig's apparent confounding of "revaluation" and "forex market liberalization" completely off the mark—and somewhat dismaying, when one considers that the grey infallibility of the Fed apparently encompasses views on China that I find basically incorrect.

If China's move is anything, call it a "managed peg", with the only difference that instead of the transparency and stability of an unambiguous dollar peg, the PBOC can fiddle with the Euro, Yen, and dollar exchange rates based upon opaque policy and strategic considerations.

As I understand it, the foreign exchange markets in China exist to put buyer and seller enterprises together to smooth out current account transactions, not to set prices (the prices can only fluctuate within a derisory band), and certainly not to manage flows of speculative capital.

When the PBOC talks about "hot money"—which apparently excites Western economists with its implication that Chinese forex markets are open to the immense international capital flows that can overwhelm the price-setting ambitions of a single country--it is talking about improper forex inflows--a.k.a. illegal inflows--of speculative capital masquerading as operating or investment capital and parked in bank accounts or in real estate against an expected appreciation of the RMB.

This kind of “hot money” enters China secretly, with difficulty, and illegally, because of corruption and despite the vigilance of the PBOC. The free market invisible hand isn’t at work in the Chinese forex markets yet; it’s still government fiat disrupted by an occasional insinuating free market finger.

The Chinese have crystal clear memories of the Asian financial crisis suffered by countries with open forex regimes--which China escaped.

China's illiberal forex regime--which is more like a compulsory sale to the state of unallocated forex-denominated capital and excess forex operating funds at a fixed rate and very little like a purchase intervention to maintain some notional exchange rate, with comprehensive mechanisms meant to identify and hinder the inflow of speculative capital--has provided the Chinese government with immense foreign exchange reserves and the financial and political leverage that goes with them.

I don't think the Chinese government is complaining they have too much forex. The only downside, as Roubini points out, is sterilizing the domestic inflationary consequences of soaking up the copious RMB PBOC hands out in return for all those dollars.

If any forex-related crisis is going to bring down the Communist government, it's going to be domestic, money-supply driven inflation, not the unslaked thirst of the Chinese middle class for cheaper Kraft macaroni and cheese and whatever other seductive exports America can muster.

The Chinese probably resent the fact that they were forced to revalue, thereby giving speculators increased incentive to finagle money into the country in anticipation of another revaluation.

But perhaps the most significant outcome for the Chinese is the fact that the cost of their domestic sterilization operations were cut by 2% and inflationary pressures were reduced correspondingly.

The significance for America is that China has abandoned its unipolar reliance on a dollar peg, and is now free to experiment with the implications of a multi-polar forex world in which China is insulated from genuine market pressures and can juggle the exchange rates to decrease the proportion of dollar inflows. Not exactly a big win for the American economy or free trade, IMO.

Wednesday, July 20, 2005

Ron Brownstein reports on Chevron carping that below-market rates on Chinese loans to CNOOC gives the Chinese a $2.6 billion advantage in its bid for Unocal, more than erasing the difference between Chevron’s $16.5 billion bid and CNOOC’s $18.5 billion bid.

I assume the $2.5 billion figure came out of the usual B-school legerdemain: assume a 2% interest rate advantage on $5 billion, choose a cost of capital to discount the cash flows back to a present value of…well, if that doesn’t give us the right number, let’s try 2.5%...

Brownstein reports the low-interest loan as fact buttressed by Chevron spin, but then confusingly reports a statement from a CNOOC advisor—who ought to know—that no such loans are involved.

I doubt Unocal stockholders will be impressed by the implication that Chevron and CNOOC’s offers are both at the theoretical maximum, even though CNOOC’s higher all-cash offer is contaminated with low interest funny money a.k.a. US greenbacks instead of good old rock solid Chevron stock.

For their part, the Chinese might argue that they’re entitled to a little help in their efforts to create a necessary premium in their offer to Unocal stockholders, when Chevron is hitting them with national security reviews, the American flag, and the kitchen sink.

However, CNOOC’s strategy is to claim the moral high ground by being “more capitalist than thou”. If they want their deal approved as an expression of the purest free-market, globalized commerce, they’d better publicly kiss off the concessionary financing, whether it exists or not.

China has been facing this problem in recent years. The picture of the Chinese government piling up mountains of foreign exchange reserves and at the same time running their economy on below-market loans is ludicrous.

They need to wean themselves from the low-interest financing available both from their own and foreign governments and world financial organizations, and fight the tendency to allocate capital based on murky strategic or policy exigencies instead of clear P/L considerations.

In other $2 billion news, the CNOOC side leaked its intention to put another $2.5 billion in an escrow account for Unocal shareholders.

The money doesn’t have a lot of significance—it’s only payable in the unlikely event that CNOOC wins the bidding war and decides to walk away from the deal anyway.

On the other hand, if the U.S. government nixes the deal, CNOOC gets to collect its money from the account and go home.

The escrow idea seems to be little more than public relations push-back.

That is to say, even though the Unocal deal looks like it’s going to turn into a protracted, expensive political nightmare that may very well make a purchase by CNOOC impossible, CNOOC is determined to stick it out and vindicate the support of those people who stand in their corner.

Which is to say in less kindly terms, the chances of CNOOC getting caught up in a stupid bidding war that does nothing more than exhaust the interest and patience of the world financial markets while enriching a phalanx of greedy lawyers, accountants, and media consultants immeasurably has increased significantly.

Tuesday, July 19, 2005

Apparently Condi galpal Sonni Efron can write anything about the North Korean situation--even the truth—if she characterizes it as a “victory” for Condi Rice and our very own Dear Leader, George W. Bush.

Secretary of State Condoleezza Rice scored a major victory in recent days when North Korea agreed to return to international negotiations.

However, Pyongyang’s return to the talks seems to have a lot to do with Seoul’s surprise offer to transmit 2 million kilowatts of electricity to North Korea than Bush’s high-minded intransigence, Rice’s subtlety, or the luscious repast of steak, cheesecake, and California wine with which we tempted the famished North Korean envoys in Beijing.

As the New York Times reveals, Her Riceness betrayed an unbecoming snippiness when confronted with the obvious:

A senior administration official traveling with Ms. Rice indicated that the Bush administration was startled, and pleasantly surprised, when the South Koreans told of their "very generous" energy offer, as this official put it.

Administration officials insisted that they did not know why North Korea had suddenly decided to return to the talks, but seemed to go out of their way to dismiss the South Korean offer."How do you know that the South Koreans made a difference?" Ms. Rice asked, in response to a question. "Have you been talking to the North Koreans about what made a difference? I think I can make the argument that a number of diplomatic efforts here by the Chinese, by the South Koreans, by the United States" were responsible. "The Japanese and the Russians have been involved too," she said.

On a more substantive if equally amusing note, the New York Times revealed that Seoul had discussed the power carrot first with Kim Jung Il, then with Bush in July during Roh’s visit, and finally—presumably having received no encouragement from the White House--sprang the electricity offer anyway.

Which means that South Korea’s patience with Bush and confidence in Rice must be at a pretty low ebb.

But that doesn’t deter La Leezza:

Ms. Rice added, "I think everybody deserves a good deal of credit for convincing the North Koreans that there were no bilateral off-ramps from the six-party talks."

Sunday, July 10, 2005

If the North Koreans return to the table ready to bargain, it will be a major victory for the Bush administration. U.S. officials said neither threats nor bribes were used to lure Pyongyang back. "There was no proximate catalyzing, arm-twisting event," a second official said.

The LA Times does better than most in reporting on the foreign policy shenanigans of the Bush administration, so I’m not sure if Sonni Efron is trafficking in sarcasm or stupidity when she follows her glowing encomium to President Bush’s North Korea policy with:

In the meantime, the South has been developing an economic assistance proposal for North Korea that Seoul officials describe as a modern-day Marshall Plan, the program used to rebuild Europe after World War II.The plan is not being proposed formally within the context of the six-party talks, but it appears designed to encourage the negotiations.

In other words, we don’t bribe the North Koreans. That’s South Korea’s job!

And no proximate catalyzing either! That’s a no-no!

Certainly no arm-twisting, either.

North Korea's neighbors envision a step-by-step process whereby the country would receive benefits as it freezes and then dismantles nuclear programs.Washington had initially ruled out rewarding North Korea in any way until the programs were dismantled, but it has recently softened its stance.

In fact, the Bush administration is in full retreat on North Korea, returning to the incentive-laden multi-lateral Clinton-era incrementalism that was supposed to be relegated to the dustbin of history in favor of triumphalist neo-con nut-twisting.

The LA Times’ unwillingness to state the obvious is, I suppose, a consummation of the sacred marriage between source and scribe that will ensure a steady stream of scoops, leaks, and spin from Condi to her favored Left Coast outlet.

China’s role in this is left unclear. It looks like China midwifed the arrangement, but is happy to leave the room when Washington and Pyongyang get it on.

China and South Korea have been pushing the Bush administration to do more to get negotiations restarted, and have urged the U.S. to hold one-on-one talks with the North, as Pyongyang has demanded. President Bush repeatedly refused.Saturday's dinner took place at a Chinese Foreign Ministry guesthouse, but no senior Chinese officials attended, a senior U.S. official said.

If my analysis of Kim Jung Il’s nuclear strategy is correct, he raised enough ruckus that China was forced to put North Korea's security interests high on its foreign policy agenda with the U.S.A.

But the Chinese are so leery of getting embroiled in whatever mischief Kim Jung Il and George W. Bush might generate on the Korean peninsula that they use their physical absence to emphasize that they are not partners, guarantors, or even witnesses to what happens when the Kim/Bush Ying Yang magic occurs.

And if Condi continues her spinning, winning ways with the media, we won’t know what’s going on, either.

Tuesday, July 05, 2005

I jumped into the Unocal kerfluffle at Brad DeLong’s website last week with the observation:

China is pursuing zero-sum deals for oil, but on the Eurasian continent using pipeline exclusivity on a government-to-government basis. The idea that Beijing is going to extend some giant straw and suck Unocal natural gas from Thailand and oil from the Gulf of Mexico into its gaping maw is simply ridiculous. Does anybody see Chinese tankers chugging from distant Unocal fields to deliver oil to China at twice the transportation costs? Nope, the oil gets sold, enters the international market, and China buys the oil that's right for it on the same international market. Unocal oil looks more like free-market win-win oil. CNOOC's government backing and China's oil needs give a good assurance that the new company will be strongly financed and its operation will actually increase the amount of energy available to the international markets. The CNOOC bid makes sense in the globalized, win-win free market scenario. US opposition only makes sense in the context of the sort of crude economic warfare that economists (and government bureaucrats keen on a healthy international market for our debt) are supposed to avoid.

Now CNOOC’s prexy Fu Chengyu does his best to make me look like a Communist agent.

Unocal, though, is a small player in oil; the company's assets are predominantly natural gas, mostly in Asia. Overall, Unocal's U.S. production accounts for less than 1% of total American consumption of oil and gas. At any rate, Fu reiterated a pledge to continue delivering Unocal oil to the U.S. and other countries that get it now. While it's true that China needs oil, Fu said, in today's world, where crude is traded freely, economics and local rules dictate where oil is shipped."The Unocal assets in the world cannot be delivered to China, because most will be supplied to the local market," said Fu. "You have to look at the economics…. Shipping oil from far distances will cost more than from short distances."He added that most of Unocal's assets were natural gas properties, which are locked up in long-term contracts with countries such as Thailand and Bangladesh. Even if the countries where those assets are located would grant permission, analysts say it wouldn't be easy to build pipelines to reroute supplies to China.

Yes, that is the common-sense situation, which I’ve also laid out in a couple recent posts. There is no legitimate national or economic security argument that justifies opposition to the CNOOC bid.

So I don’t intend to blog on the merits of CNOOC/Unocal any more.

The politics, of course, are another matter.

China produces an interesting reaction that cuts across the usual left-right divide.

You have left of center types like me and white-shoe business Republicans in panda-hugger mode.

And you have fire-eating lefties and anti-Chicom deadenders from the far right joining to excoriate the Beijing regime and call for resolute opposition to the economic machinations of our strategic competitor in the East.

The Blue Team (rightwing) attitude, rooted in American exceptionalism, aggressive anti-Communism, and a faith in the efficacy of zero-sum confrontation with totalitarian regimes, is pretty straightforward.

The leftwing response is more…well, I don’t know if “nuanced” is the right word.

Much of the opposition stems from a visceral distaste for the CCP regime and awareness of the human rights horrors it has perpetrated over the last eighty years, culminating in the Tian An Men incident.

But some of it looks like a calculated attempt to stake out some defendable political turf for the left on national security and foreign affairs.

Americans are becoming increasingly aware that the U.S.A. is an empire, with burdens and opportunities well beyond those of ordinary nation-states. And Americans recognize that the right wing has an ideology matching this power—kick-ass unilateralism in the service of U.S. hegemony.

The Democrats and, especially the left, are having a hard time coming up with an electable package that combines traditional—and admirable—concern with human rights and social justice with a strategy that defines and manages American power in a crowd-pleasingly pro-active and hairy-chested way.

Confronting China offers a solution.

On the economic front, U.S. power is reforged as a weapon of American economic nationalism, substituting stand-up-for-the-American-working-stiff protectionism for that lockstep global coordination of US military operations and corporate interests I call “Halliburtanization”.

On the foreign affairs side, we would nobly oppose an oppressive, quasi-imperial regional power that subjugates millions of people and huge chunks of territory that would prefer to be independent. That’s an improvement on our current policy of picking small, relatively helpless countries that are struggling to emerge from economic and political colonialism and dictatorship, but have the misfortune of possessing territory or resources that the U.S. takes a fatal interest in.

Getting tough on China, in summary, provides an opportunity for the left to engage in politically correct but manly chest-thumping.

I usually agree with Steve Gilliard’s take on things, but in his underinformed and bombastic post on Unocal, he seems to veer into “righteous leftwing meathead” territory:

Yes, let's have China own an American oil company. Why not let them invest in Sun,. Microsoft and Boeing as well. Maybe they want shares in Colt and Rathyeon as well? Maybe station PLA troops to protect their interests, starting with Wal-Mart.

Hell no.

The PLA is a major investor in Chinese businesses. Letting them buy Unocal is not like letting the Japanese buy Rockefeller Center. It's a national security issue.

I am not immune to the attraction of the America-first school of economic nationalism. The Chinese manage international trade as a tool of national policy, and we should probably do the same.

However, unless rescuing the hard-working hydrocarbons of the world from enslavement by CNOOC—so they can gratefully adorn the freedom-loving balance sheet of Chevron—can be spun as a triumph of hard-nosed yet principled liberal realpolitik, I really don’t see the point of encouraging left-of-center atavism on the Unocal issue.

Monday, June 27, 2005

Economists like Angry Bear have a hard time understanding the fuss over the Unocal deal. In conventional terms, they are right. Oil is fungible, it doesn’t matter too much where it comes out of the earth, and, given China’s enormous energy needs, if the Chinese buy Unocal, they are likely to be doing everything they can through their Unocal investment to increase the world’s supply of petroleum.

Even if the Chinese wanted to suck every drop of Unocal’s oil into their economy, they wouldn’t be piping and shipping it from their far-flung Unocal outposts to the Chinese mainland. They’d sell the Unocal oil to the most suitable market, take the revenues, and buy oil from some closer producer at a better price.

Net effect on the international oil market—in conventional terms and under ordinary circumstances—zip.

The key factor, however, is that the Chinese perceive that the international free market in oil, and China’s ability to import oil on stable, economically rational terms, are at risk.

Even before the Bush administration, the U.S. has played the oil card in foreign affairs, especially in an effort to hem in Russia and keep it from leveraging its oil surplus into leadership of some Central Asian Opekhistan. Case in point: the recently opened Baku-Tbilisi-Ceyhan pipeline, which represents a decade-long U.S. investment in diplomacy, influence, and revolution in order to dick with Russia and Iran in their backyard.

We’ll probably never find out what was in Cheney’s energy task force papers, but there’s a good bet that there was a lot of thought given to the role of petroleum imports as a strategic factor in containing China.

Unfortunately I can’t come up with the citation now, but I was pretty amazed to read back in 2002 that the U.S. State Department had filed a brief supporting dismissal of a case against a multi-national oil company for human rights violations at its operations in Aceh, Indonesia because legal hassles for the oil company might create an opening for Chinese interests to come in, and that was bad for our national security.

With the Unocal bid, these issues come to the fore, and the New York Times responded with a good article from Joseph Kahn in the business section and, for once, a bad one from Paul Krugman.

Kahn’s China’s Costly Quest for Energy Control does an excellent job of describing China’s energy insecurity, which is to say China’s fear that the United States will use China’s dependence on oil imports as a weapon.

China would of course be vulnerable to sanctions if the United States were able to marshal international support for a legal cutoff of oil in the case of an open confrontation over Taiwan or some other hot button issue.

In that case, it probably wouldn’t matter if China owned Unocal, Chevron, and ExxonMobil put together—none of that oil would be coming in.

But China would also be vulnerable to a spike in oil prices if the United States decided to use its influence over oil producers, oil ocean transport, and the oil market to hammer the Chinese economy in case of undeclared hostilities…

…or simply to drain down China’s irritating forex reserves if we decided that we didn’t want them as a major player in the T-bill market anymore.

In this context, CNOOC’s bid for Unocal is actually a hopeful bet on a stable global economy buttressed by a genuine free market in petroleum.

If CNOOC controls the kind of oil Unocal produces—freely traded on world markets and not tied up in government-to-government agreements—then CNOOC—and China’s forex reserves—will benefit proportionally if the U.S. pulls some Enronesque stunt like jerking Iraq crude off the market because of “pipeline sabotage”.

And if China secures increased open-market reserves through Unocal and other deals, the effectiveness—and likelihood--of this kind of tactic becomes less likely. (However, if all this peak oil talk is true, then the entire international market—and the world economy—will become increasingly vulnerable to ever more minor interventions.)

In futures-market talk, China wants to “go long”—take title to petroleum in anticipation of a price rise in order to hedge its risks, and ensure that the world economy is not held hostage to OPEC-type monopoly plays by the United States that would suck disproportionate amounts of the world’s forex reserves into the pockets of a few companies.

As such it’s a bet on the viability of the global free market economy that should be encouraged.

Kahn states the issue well:

Now Washington has the chance to shape China's frenetic quest. The China National Offshore Oil Corporation, known as CNOOC, has offered $18.5 billion for the American oil company Unocal. If its bid is successful, Beijing will have a greater stake in the global oil markets, in the same way that Japanese and European oil companies work closely with major American companies around the world. If the bid were rejected by the United States on national security grounds, as some members of Congress have publicly advocated, China could be motivated to build more ties to rogue states and step up its courtship of major oil producers in Africa and Latin America that in the past have looked mainly to the United States market.

In that context, it’s disappointing that Paul Krugman takes the exact opposite and, to me, incorrect view in his column The Chinese Challenge. He says he would would oppose the deal—because it would give China Unocal’s leverage in pursuing Great Game-style dastardly deals with dictators.

China does play the captive-oil pipeline-and-allocation game on the Eurasian continent—but government-to-government, as all the players do. The Unocal deal probably has very little to do with this.

Friday, June 24, 2005

The real story of CNOOC's bid for Unocal is Wall Street's hopes for a China-driven M&A binge. But that's probably not the story that's going to make it to the front page.

Commenting on the CNOOC bid for Unocal, I think the LA Times editorial Oil for China gets it just about right in saying:

Not long ago, China was a net exporter of oil, but its growing need for imported oil is one reason crude is trading at $60 a barrel. As the nation emerges from poverty into the global middle class, it is natural that China's consumption of global resources starts mirroring its one-fifth share of global population.For well over half a century, ensuring sufficient reserves and a steady flow of oil has been a cornerstone of U.S. foreign policy. China now has to think in similar ways. Rather than leading to a zero-sum showdown, this affinity of interests between the two nations, if handled properly, could strengthen the relationship

(Kudos, also I think, for inserting an implied reference to Alice Hobart's classic novel of civilizing China through the petroleum derivatives trade, Oil for the Lamps of China).

Anyway, the LA Times is right, as in how things should be. Not necessarily right, as in the way things are.

China is pretty much committed to the win-win scenario of globalization, but the Bush administration isn’t.

Washington, relying on the supposed trump card of unanswerable military might, has been eager to push the world in general, the Middle East in particular, and the Far East in principal, into the zero-sum realm of confrontation.

Having said that, the Bush ideological force is weak and the GOP business force is strong nowadays, so I don’t think that the Bush administration will find much high-profile encouragement or political profit in fanning the fear of the Yellow Peril on the issue of Unocal.

In the LA Times initial coverage of the CNOOC bid, I found the last paragraph to be the money i.e. key quote:

CNOOC's financial advisors on the offer include the U.S. investment firms Goldman, Sachs & Co. and J.P. Morgan Securities.

Wall Street is deeply committed to the CNOOC bid.

You can see it in the impeccable PR work highlighting CNOOC’s Westernized, responsible capitalist credentials, culminated in Don Lee’s front page wet kiss in today’s LA Times, Chinese Firm Has American Accent.

The news and business page coverage reflect sophisticated spin of CNOOC's good-buty-just-not-good-enough bid—presumably by Unocal and its advisers, but also reflecting the hopes and dreams of arbitragers—meant to encourage CNOOC to bump its price, Chevron to improve its offer, and to provoke a profitable bidding war if possible.

The Chinese acquisition binge is not--at least not yet—part of a systematic Chinese government strategy to shift out of T-bonds.

It’s driven by financial considerations—and abetted by U.S. investment bankers.

The U.S. stock market is pretty moribund these days. The hi-tech bubble has long since popped, the hot money poured into real estate, and a nasty combination of high oil prices and the collapse of the Social Security private account soufflé mean that there is going to be a dearth of domestic enthusiasm or money directed to Wall Street.

Who’s got a lot of US dollars lying around available for M&A?

The Chinese, of course.

As such, they are simply filling the historical role of eager foreign investors in the American-dream-for-sale, as the English were in the 19th century, and the OPEC sheikdoms and the Japanese did in the 1970s and 80s.

At least to date, this move doesn’t reflect a systematic plan by the Chinese government.

CNOOC and Haier (the Chinese company that recently bid for Maytag) are signature independent business companies by Chinese standards. Haier isn’t even state-owned. They would be the least likely and effective tools for government-directed recycling of excess US dollar assets.

What we are seeing is Wall Street’s attempt to initiate a Chinese M&A binge.

If you worry about the continued hollowing out of the American economy and shifting of its assets overseas, you can point your fingers at Wall Street—the pinstripe peril—and not the Chinese.

The events of the next few weeks will show if a combination of Chinese caution, American paranoia, and Bush administration hostility can stem the tide.

Wednesday, June 15, 2005

In response to North Korea's concerns for its security, the United States has said repeatedly that it has no intention of attacking or invading the hard-line communist state, and Secretary of State Condoleezza Rice has said that the U.S. does not question North Korea's sovereignty.But Rice has not expressly said that the United States harbors no "hostile intent" toward or promises "peaceful coexistence" with the regime in Pyongyang — language that North Korea has demanded as a condition for returning to the negotiations after a nearly one-year hiatus."The problem is that it's a North Korean formulation," said the senior official, who in keeping with diplomatic protocol declined to be named. "We don't want to be reduced to sort of a circus animal doing an act, being told to jump through various hoops at the behest of the North Koreans. We have told them really all they need to know" about U.S. policy.

Problem is, the North Koreans already know "all they need to know about U.S. policy", to whit: North Korea is a member of the Axis of Evil, our policy has moved beyond non-proliferation to aggressive counter-proliferation and military pre-emption, the U.S. claims a specific mandate to promote democracy and oppose tyranny around the world, and President Bush has a history of setting circumstantial and procedural traps for his enemies meant to demonstrate that an invasion not his decision but all your fault.

It seems the one thing that would persuade North Korea to abandon its purported nuclear deterrent is an explicit undertaking from the United States that it will not invade—under any pretext.

However, the United States just can’t bring itself to say those few simple words.

Perhaps, as the article implies, the U.S.A. cannot adopt the wording proposed by the North Koreans—because it represents a veiled insult to the phrasemaking powers of the elite US diplomats and wordsmiths who brought you “Axis of Evil”, full-spectrum dominance, “GWOT” (Global War on Terror) and “WAVE” (the War Against Violent Extremism, debuting soon on your local cable outlet).

Or maybe we feel that the right of the United States and its proxies to attack North Korea whenever a suitable opportunity presents itself is simply to precious to abandon in return for North Korea’s dismantling of its nuclear program—the reason this crisis is supposed to exist in the first place.

Monday, June 13, 2005

Abstract: North Korea is suffering another year of famine. Kim Jung Il's inability to keep his people fed is sometimes cited as a justification--and even an implement--for regime change. Until its economy was disrupted by the collapse of the Soviet Union, North Korea produced 10 million tons of grain a year--vs. little over 4 million tons expected for 2005.These circumstances and the Chinese example of the Great Leap Forward allow the North Korean leadership to view the great hunger as a transient crisis, not a systemic failure of the DPRK. If the Kim Jung Il regime survives its confrontation with the United States, it may decide to follow the Chinese example, discard its ideology of economic self-sufficiency, and seek to bolster its political viability by allowing its people to share in the prosperity of the global economy.China Matters reviews the history of North Korea's agricultural crisis and places it in the context of Asian economic development, pointing out that agricultural self-sufficiency is neither the norm nor the ideal for the East Asian "tiger" economies. It concludes:Pyongyang needs is food aid, fertilizer, and time—time to reform its economy and rebuild its agriculture. Instead, it is enmeshed in a web of real and virtual sanctions similar to that which accelerated the decline of the Iraqi standard of living under Saddam in the 1990s. But Saddam’s regime survived sanctions—though many of Iraq’s people did not. It took an invasion to finish the job sanctions was supposed to do, and end his regime—an invasion that has exacerbated Iraq’s humanitarian crisis instead of relieving it. Sanctions did not lead to the regime change result we desired. Instead, the failure of sanctions impelled us on a course we now recognize as disastrous. That’s something we should remember when we use a defacto cutoff of food aid in an attempt to pressure and destabilize the regime of Kim Jung Il. Letting North Korea starve is not, in the end, the fate its Communist government has doomed it to suffer. It is a political decision, made largely--though not entirely--in the West and China.

Full text:

A South Korean think tank reported that North Korea will once again have to rely on international aid to avoid famine.

It’s understandable to take this as just another example of how some sorry-ass Communist regime can’t feed its own people.

And it’s inevitable that some observers will take the famine conditions in North Korea as evidence of the DPRK’s failed state status—and an excuse to withhold aid and let the regime collapse.

Hey it’s their own fault!

If mass starvation is nothing more than the defining attribute of a failed state, then North Korea needs regime change before it can feed its people.

Then somehow—through that alchemy of free market forces, unbridled optimism, and immunity from consequences that served us so well in rebuilding Iraq—we can hope things will be so much better once the Kim Jung Il regime has disappeared.

Reality is a little different. The North Korean food crisis can be attributed to the failure of the North Korean government—its failure to respond adequately to a fatal combination of forces beyond its control, including geopolitical changes, bad weather, and Western hostility.

The DPRK did a good job of feeding its population—until 1989, when the Soviet Union--and its unstinting aid to Pyongyang—disappeared.

The Soviets weren’t sending food. They were sending energy.

Pyongyang’s energy imports were cut by 60%. The sudden cutoff devastated its industrial economy and rippled into the agricultural sector, disrupting fertilizer production and compromising the DPRK’s ability to mechanically farm and irrigate its fields.

North Korean fertilizer use crashed from 700,000 tons to 230,000 tons.

And food output crashed from over 10,000,000 tons to less than 5,000,000.

The grim numbers are recorded in the reports of the U.N.’s Food and Agriculture Organization investigations and are neatly summarized in a report that treats North Korea as a worst-case example of a sudden energy cutoff peak-oil Armageddon scenario.

North Korea’s agricultural land per capita is about the same as China’s. But its productivity—and inputs—today are about 40% lower.

I see parallels with China in its pre-market reform days.

Not just in productivity. The collapse of agricultural production resulting from the wheels coming off a socialist planned economy evokes parallels with the disaster of the Great Leap Forward in the 1950s.

Agriculture, which has been a human vocation for 4000 years, is surprisingly vulnerable even in its modern incarnation to transient disruptions in human, mechanical, and material inputs.

Chinese agriculture was staggered in 1959 by the disruption of rural labor diverted the catastrophic crash industrialization of the Great Leap. The error was exacerbated by bad weather and compounded by disastrous mismanagement of the planting program and the grain stocks that they were able to accumulate. Despite desperate efforts to repair the damage, the fatal dislocations persisted into 1961 and over 20 million people starved to death.

Kim Jung Il can, at least, point out that the initial shock was external and not owing to spectacular errors of commission by state planners. But North Korean agriculture has been unable to bounce back for over 10 years. Over 2 million died and hunger and malnutrition have become grim facts of life for the North Korean people.

Although the economy has expanded over the last six years, the DPRK can only meet 10% of its fertilizer needs domestically, and produces at least one million tons of grain short of what it needs to feed its people each year.

It is digging an ever deepening hole for itself, underfertilizing, overfarming, and creating a barren, nutrient-exhausted soil that will take years of remediation to set right.

The New York Times reports that this year Pyongyang is sending millions of city dwellers into the fields in an exercise that is probably part labor mobilization—to take the place of the tractors and pumps that no longer have diesel and spare parts to run with—and partly emergency evacuation—getting starving people out of the cities and closer to the food in the country, where they can barter and scavenge their living.

The fundamental error of the Kim Jung Il regime has been its lack of a Plan B: in the near term, it had no pre-existing foreign exchange reserve to cushion the population against this major, if not entirely foreseeable disruption.

In the long term, it wasn’t set up for a transition to a market economy that would generate exports, attract investment, and create savings that could be tapped to effect food imports as needed.

The fact is, most of the high population density East Asian countries import food.

The demand that North Korea—originally the most heavily industrialized portion of the Korean peninsula and perhaps best considered as a East Asian dragon in utero (or hibernation)—prove its viability as a sovereign state through agricultural self-sufficiency is something of a canard if you look at its neighbors.

The world’s biggest importers are Japan (over 25 million tons per annum of food and feed grains) and, ironically, the Republic of Korea (13 million). This compares to the 700,000 tons or so of grain North Korea needs to import (it faces a 500,000-ton shortfall) to achieve the meanest level of subsistence for its population.

(While we’re talking irony, those regime-change wonders Iraq and Afghanistan are among the biggest non-industrialized or de-industrialized grain importers a.k.a. basket cases, with current annual imports of 3 million tons and 1.6 million tons respectively. Afghanistan might be considered a free-market success story because its six-fold increase in wheat imports is driven in part by the rational decision to devote its resources to an extremely profitable export commodity—opium.)

Perhaps the true roots of the East Asian economic miracle lie in the extension of the New World’s bulk grain business to Asia, ensuring reliable supplies of grain to countries that otherwise would have to choose between balanced development of agriculture and industry and simple pell-mell industrialization underwritten by U.S., Canadian, and Argentine grain.

Of course, the Asian countries that couldn’t make the choice in favor of headlong industrialization underpinned by grain imports were the socialist economies: China and the DPRK.

I remember reading somewhere that China’s opening to the West in the 1970s was triggered by the Oh Shit realization that China would find itself trapped permanently in a high risk low growth cul de sac if it persisted with its primitive agricultural and industrial policies as the population grew remorselessly and the country’s food security became more and more vulnerable to a hiccup in the harvest.

Even if the quota of hog bristles and silver ear fungus for export through the Canton Trade Fair was multiplied with Stakhanovite intensity, in other words, China would always be a step away from famine and profound internal and international weakness if it did not change its system.

And change its system it did, creating an export juggernaut and, in developments that have received less attention, it brought large numbers of peasants into the cities and townships—and into the market economy, getting the farmers hooked on debt and consumer goods, and reducing the propensity of the agricultural sector to hoard and consume its own grain while soaking up subsidized state inputs.

During its agricultural and economic reform, China was in the enviable position of benefiting from a lot of pro-China feelings from the West, possessing enough foreign exchange reserves to meet its food needs, and having generally good harvests in the 1980s.

The DPRK has, of course, had none of these advantages.

Disruption to the economy was followed by terrible weather and accompanied by hostility of the Western powers that Kim Jung Il did much to exacerbate.

So a humanitarian crisis that could be alleviated by the redirection of four days of Asia’s grain imports per annum to North Korea is allowed to persist because of “donor fatigue”.

In the absence of aid, North Korea has been trying to cover the shortfall by agricultural reform, decollectivizing land and allowing free markets in agricultural products.

Trouble is, the peasants are withholding what grain they have—hunger is worst among the urbanized population—and the price of food is out of reach of many families.

And the Chinese-style mobilization campaign to reclaim marginal lands for agriculture has apparently been counterproductive in some cases. Flooding not only destroyed many newly terraced fields, but swept down sand and gravel and destroyed otherwise viable fields in the valleys.

DPKR agricultural policy has not been one of folly and neglect. It has been one of frantic improvisation and growing desperation as nutrients are mined out of an increasingly barren soil, plants and machinery rust uselessly, and people starve.

One of the interesting questions is why the PRC didn’t step in to ameliorate the the North Korean regime’s ordeal.

Maybe it was parsimony. Maybe it was focus on the emerging relationship with the ROK at the expense of the DPRK.

And perhaps Kim Jung Il felt so insecure about his authority that he felt he could maintain his position only by the most ostentatious and counterproductive displays of independence from Chinese interference.

More intensive Chinese-style market reforms—which might have revived the industrial economy and created more admirable and popular exports than SCUD missiles—were rendered politically suicidal by the need of the isolated Pyongyang regime to keep itself on a militarized state of siege footing vis a vis the West.

What is preventing the DPRK’s recovery is a lethal combination of its own inability to reform while under intense political and economic pressure, and the unwillingness of China and the West to assist it in a transition to a market-mediated socialist economy with the ability to import and attract investment.

All Pyongyang needs is food aid, fertilizer, and time—time to reform its economy and rebuild its agriculture.

Instead, it is enmeshed in a web of real and virtual sanctions similar to that which accelerated the decline of the Iraqi standard of living under Saddam in the 1990s.

But Saddam’s regime survived sanctions—though many of Iraq’s people did not. It took an invasion to finish the job sanctions was supposed to do, and end his regime—an invasion that has exacerbated Iraq’s humanitarian crisis instead of relieving it.

Sanctions did not lead to the regime change result we desired. Instead, the failure of sanctions impelled us on a course we now recognize as disastrous.

That’s something we should remember when we use a defacto cutoff of food aid in an attempt to pressure and destabilize the regime of Kim Jung Il.

Letting North Korea starve is not, in the end, the fate its Communist government has doomed it to suffer.

It is a political decision, made largely--though not entirely--in the West and China.

Saturday, June 11, 2005

Another sign that the neo-cons are out of favor and Condi Rice is introducing her particular brand of foreign policy professionalism to the Bush administration is the rise of Thomas Fingar.

Fingar is now the top intelligence analyst at John Negroponte’s ODNI (Office of the Director of National Intelligence).

He’s a veteran of the Bureau of Intelligence and Research—the State Department shop heralded as the little analytical engine that could, guys who got things right while everybody else got it wrong on the Soviet military buildup, the Iraq nuclear program, and, most famously, those aluminum tubes that the CIA was determined to morph from rocket components into Saddam’s centrifuges for uranium enrichment.

From Justin Rood’s admiring profile in the Washington Monthly of the virtues of INR--and Thomas Fingar:

The NRI has a unique mindset… The State Department's staffers, by virtue of their responsibilities, simply must be open to the points of view of the countries with which they conduct daily diplomacy. There is an inherent tension within the State Department between cooperating with the White House and coordinating with the rest of the world. That tension creates a market within the department for objective analysis, a need for an honest broker. "This building understands we're useless if we're not objective," Fingar told me. "If you want an echo, close your door. Or sing in the shower."

This kind of attitude has caused some anguished gear grinding from Foggy-Bottom despising conservatives like Frank Gaffney, Rood reported:

In The Washington Times in August 2003, former Reagan White House official Frank Gaffney Jr. lamented the purported bias of INR's career civil servant experts. "This bureau's intelligence products have tended to reflect the policy predilections of State's permanent bureaucracy, rather than the facts."

Rood goes on to say:

But there's a simple bottom-line test for intelligence: Who called it right most often? And on the big questions, INR has consistently gotten right what other agencies have gotten wrong.

Fingar and his ex-boss at INR, Carl Ford, have been in the news since one of their analysts, Christian Westermann, had the temerity to comment “do not concur” on some extravagant claims about Cuban bioweapons programs that John Bolton wanted to include in a speech.

Mr. Fingar: "[An angry Bolton told me] That he was the President's appointee, that he had every right to say what he believed, that he wasn't going to be told what he could say by a mid-level INR munchkin analyst." Fingar interview, p. 10, lines 12-15.

and managed to insulate Westermann from Bolton’s volcanic wrath.

In an interesting sign of the state of foreign affairs in the second Bush administration, Fingar seems to be on the way up and Bolton is still not assured of emerging from the confirmation meatgrinder with enough votes to drag his tattered and humiliated carcass to the UN.

Fingar interests China Matters because he is also a China hand, a Mandarin speaker with a polysci degree from Stanford who has served in China-related functions at State since the 1980s.

Now, Fingar has not only successfully made the jump from the State Department—the nest of appeasing bureaucrats despised by the GOP right—to the ODNI, shop of that gentleman with impeccable death squad credentials—John Negroponte.

Fingar is now the keeper of the nation’s intelligence crown jewels, charged with “governance” of the President’s Daily Brief.

As you recall, the daily intelligence brief used to be delivered by the CIA’s George Tenet and is used to set the table for whatever agenda the foreign policy establishment wishes to promote to our CEO president.

It sometimes also performs the underappreciated function of providing warnings that terrorists are planning to fly jetliners into US office buildings.

The fact that a China hand, an opponent of the neo-cons, and a respected intelligence analyst is going to have Bush’s ear every morning is, to say the least, interesting.

One can envision him as Condi’s last line of defense, deploying the weapons of data, logic, and probability, and common sense against Dick Cheney’s relentless effort to stampede the President by invoking every worst-case scenario known to man.

So Condi has succeeded in purging the neo-cons and putting her State Department and academic technocrats in the top spots, close to the President’s ear.

A few highly experienced guys and gals will serve as gatekeepers, keeping the cherrypickers, Cheney hawks, and neocon nutbars from driving the foreign policy agenda with stovepiped intel. If anything, the elite is supposed to stovepipe guidelines down to the grunts, instead of the other way around.

I think Condi Rice has taken the risky step of assuming that she can orchestrate the proper gathering and processing of intelligence from the top down. This may indeed insulate the top decision-making apparatus from the neo-con schemes to short-circuit the policy process.

However, Condi has previously shown that, although she is adept at winning the president’s support and committed to enabling his agenda, her record in the first Bush administration as a hands-on manager has been disastrous.

Case in point is the Iraq Stabilization Group she headed (and whose dissolution, I believe, has never been announced). You remember that, don’t you? Condi was supposed to get her arms around that little situation we had in Iraq and make it all better. Surely you remember.

And Miss “I believe the title was ‘Bin Laden Determined to Attack Inside the United States’” hasn’t shown herself a reliable steward of our critical intelligence functions, either.

So the idea that her leadership can amputate a dysfunctional body of analysts and ideologues from the rational Condi-brain that effectively gathers, sifts, and analyzes the critical intel, is open to question.

And if the ODNI is her chosen instrument for transforming the way the U.S. government handles intelligence, her apparently limited managerial and leadership powers are going to be tested to the utmost.

The Washington Post’s Walter Pincus recently reported on the state of the ODNI:

"This is an evolving process," the senior intelligence official told reporters who attended the briefing on the condition on anonymity. "We are moving from chalk to paper," he said, adding that should indicate things were far from final. The hastily drafted and approved legislation that established the DNI and his office last December represented a series of compromises between Congress and the White House. Those agreements have left room for Negroponte and his staff to establish what may be the standard structure for DNIs in the future.

"We are spending a lot of time searching for good people, and it is imperative we get the right people for these jobs," Negroponte said in a statement released yesterday.

…

The DNI is also setting up a 24-hour watch to keep Negroponte and Hayden informed of any sudden changes in intelligence. This office, with a handful of employees, will be located with another DNI entity, the National Counterterrorism Center, which occupies its own building in Northern Virginia.

An uncharitable reading would be that the effort is ad hoc, understaffed, behind the curve, and God help us, the ODNI is responsible for the President’s Daily Brief and they haven’t gone to 24-hour operation yet?